SUN LIFE GLOBAL INVESTMENTS (CANADA) INC.

Transcription

1 SUN LIFE GLOBAL INVESTMENTS (CANADA) INC. SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE for the period ended June 30, 2017

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3 This semi-annual management report of fund performance contains financial highlights but does not contain the complete financial statements of the investment fund. You can request a free copy of the semi-annual financial statements by calling , by sending an to us at info@sunlifeglobalinvestments.com or by writing to us at Sun Life Global Investments (Canada) Inc., 1 York Street, Toronto, Ontario, M5J 0B6. Our financial statements are available on our website at and on SEDAR at All of the financial information is calculated based on the pricing Net Asset Valuation for the investment fund, unless otherwise stated. Shareholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Results of Operations During the period, the net asset value of the Sun Life Dynamic Strategic Yield Class* (the Fund ) increased from $23.4 million to $25.6 million. The increase in net asset value was due to positive net sales, as well as positive performance during the period. During the period, the Fund returned 3.2% for Series A shares. This result surpassed the Fund s benchmark, 50% S&P/TSX Composite Index and 50% FTSE TMX Canada Universe Bond, which returned 1.6%. The performance returns for other series of this Fund are similar to those of Series A except for differences in expense structures. Please refer to the Past Performance section of this report for performance of each series. The Fund currently invests substantially all of its holdings in units of the Sun Life Dynamic Strategic Yield Fund (the underlying Trust Fund ). The following commentary relates in the underlying Trust Fund. The underlying Trust Fund outperformed the blended benchmark due in part to an underweight security selection in Energy and an overweight in Health Care and Technology within the equity component. The underlying Trust Fund s asset mix was overweight equities, which includes alternative investments and REITs, relative to bonds. The allocation to equities decreased, primarily through the exposure to options (which includes a holding in an option-writing fund). Exposure to fixed income and cash rose over the period. Geographically, the weighting in Canada increased while the U.S. was lowered. Both countries were positive contributors with the U.S. having the greater impact on returns. On an equity sector level, Financials, Health Care and Industrials were the largest allocations in the underlying Trust Fund. Over the period, exposure to Industrials increased and Real Estate was lowered. The most significant contributions to returns were made by holdings in Technology, Health Care and Industrials. There were no significant sector detractors. Notable security contributors included Apple, Bayer AG and Rogers Communications. Positions in Verizon Communications, U.K.-based National Grid and Bank of Montreal were the top detractors to performance. The underlying Trust Fund s bond allocation was primarily held in Canadian corporates, which saw a small increase over the period. The portfolio lowered its weighting to foreign bonds and debentures. Overall, the fixed income component was a positive contributor to performance. Recent Developments The period was characterized by the continued resurgence of the Canadian economy with employment numbers growing at levels rarely seen since the financial crisis. In the first quarter, the Canadian economy delivered a better-thanexpected 3.7% rate of growth which has, in turn, buoyed jobs and housing markets while helping to boost consumer confidence. While oil prices began the year on relatively stable footing, they started to decline in March as concerns over persistently high U.S. oil inventories and increased production led to initial volatility that was exacerbated by technical trading. Although the Organization of Petroleum Exporting Countries ( OPEC ) extended their cuts in late May, oil prices remained under pressure and ended the period significantly lower. However, the broader economic landscape improved, with business leaders surveyed by the Bank of Canada in June expressing the greatest confidence in their outlooks since As the period came to a close, the Bank of Canada was openly contemplating an interest rate increase due to the renewed strength of the Canadian economy. The U.S. economy entered the period with strong momentum. This was further boosted in the first quarter by a strong showing from S&P 500 companies, which registered the best year-over-year growth rate in corporate earnings since the fourth quarter of Concurrent with strong domestic earnings were strong international earnings, which was a plus for American multinational companies that depend on overseas markets for the majority of sales and profits. On the political front, U.S. President Trump s attempt to repeal * Dynamic, Dynamic Funds and Dynamic Strategic Yield Fund are registered and proprietary trademarks of The Bank of Nova Scotia, an affiliate of 1832 Asset Management L.P. used under license by the Manager. Semi-Annual MRFP Sun Life Global Investments p 1

4 and replace the Affordable Care Act a key election promise failed, casting a shadow over the ambitious agenda he had pledged to enact once in office. On the economic front, jobs data remained strong allowing the U.S. Federal Reserve to increase interest rates twice once in March and again in June. In another vote of confidence for the U.S. economy, the U.S. Federal Reserve maintained its guidance to enact a third rate rise before the year is out, while stating its desire to start unwinding the bank s $4.5 trillion balance sheet (U.S. dollars) it s amassed since the financial crisis. North American fixed income markets advanced during the period as interest rates remained supportive for fixed income markets for the majority of the period, while the general economic environment continued to trend in a positive direction, benefiting the broader credit markets. Following the election of Donald Trump as the 45th President of the United States in November, the ensuing Trump rally continued into the new year and pushed risk assets higher as investor optimism continued to build surrounding forthcoming pro-growth fiscal stimulus in the form of tax cuts, infrastructure spending, and deregulation. Within both Canada and the United States, interest rates edged lower for the majority of the period which supported interest rate sensitive securities such as government bonds. Towards the end of the period, however, interest rates reversed trend and began rising, putting pressure on the fixed income markets. The U.S. Federal Reserve increased the target range for overnight interest rates twice during the period from 1.00% to 1.25% on strength in the labour market and an overall positive outlook for U.S. economic growth. Within Canada, it was a similar story as the Bank of Canada changed their tone from dovish to slightly hawkish, stating that the emergency interest rate cuts taken in 2015 had accomplished their goal of supporting economic growth during a weak commodity environment. The market began anticipating an increase in the Canadian benchmark overnight rate and after falling for much of the period, interest rates began to rise. During the period the U.S. 10-year Treasury yield fell from 2.43% to 2.30%, while the 10-year Government of Canada yield increased slightly, rising from 1.72% to 1.76%. High yield bonds benefited from the ongoing positive outlook for the U.S. and Canadian economies and credit spreads tightened during the period, helping support credit markets. High yield bonds led fixed income markets higher, with the lower quality segment outperforming as CCC and below rated credits outperformed. Loans also provided positive performance for investors, although they trailed high yield bonds. Corporate bonds led performance higher within the investment grade space as economic conditions were supportive and credit spreads tightened, and the lower quality segment of the investment grade fixed income market outperformed the higher quality segment as BBB corporate bonds outperformed AAA/AA corporate bonds. Government bonds also generated positive returns but lagged the corporate debt market. Effective February 5, 2016, all Series E and EF shares were converted to Series A shares, under the Front End Sales Charge option, and Series F shares, respectively, of the same Fund. Please refer to the Fund s simplified prospectus for more details about the captioned change and for details about the Private Client Program. Related Party Transactions Sun Life Global Investments (Canada) Inc. (the Manager ) is the manager and portfolio manager of the Fund. The Manager is responsible for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including providing or arranging for the provision of investment advice, bookkeeping, recordkeeping and other administrative services for the Fund. For its services, the Manager receives a management fee that is calculated as a percentage of the average net asset value of the Fund. This fee is calculated daily and payable monthly. As portfolio manager, the Manager is responsible for managing the investment portfolio of the Fund directly or through sub-advisors. The Manager is an indirect wholly owned subsidiary of Sun Life Financial Inc. Fund Administrative Expenses The Manager pays certain of the operating expenses of each Fund (the Administration Expenses ) in return for a fixed administration fee paid to the Manager by each Fund ( Administration Fee ). The Administration Fee is based on the net asset value of each series of the Fund. The Administration Expenses include, but are not limited to, record keeper fees, accounting, audit and legal fees, bank and interest charges, safekeeping and custodial fees, taxes, administrative and systems costs, costs of reports to investors, prospectuses and other disclosure documents, regulatory filing fees (including those incurred by the Manager) and trustee fees for registered plans. The amount of this charge is disclosed as a fund administrative expense in the Fund s Statement of Comprehensive Income found in the semi-annual financial statements (unaudited). Each Fund also pays certain operating expenses directly (the Fund Costs ). Fund Costs include: borrowing costs incurred by the Fund from time to time; costs in connection with portfolio transactions; fees and expenses payable to or in connection with the Fund s Independent Review Committee ( IRC ); taxes payable by the Fund; and the costs of complying with any new regulatory or legal requirement p 2 Semi-Annual MRFP Sun Life Global Investments

5 imposed on the Fund. Each Fund allocates Fund Costs proportionately among its series of shares. The Fund Costs that are specific to a series of shares are allocated to that series. These amounts are paid out of the assets attributed to each series of shares of the Fund, which reduces the return you may receive. Series Description The Fund offers the following series of shares: A, AT5, F, I and O. The date of creation for Series A, AT5 and F shares was August 1, 2013, the date of creation for Series O shares was April 1, 2014, and the date of creation for Series I shares was May 1, Series A and AT5 shares are available to all investors. Series AT5 shares are designed to provide investors with a fixed monthly distribution based upon a target annualized distribution rate of 5% of the net asset value per share as at the end of the prior year. Series F shares are available to investors who have a fee-based account with their dealer and whose dealer has signed an agreement with the Manager. Instead of paying sales charges, investors buying Series F shares pay fees to their dealer for investment advice and other services. The Manager does not pay any commissions to dealers in respect of Series F shares, so the Manager can charge a lower management fee. Series I shares are special purpose securities that are currently only available to other mutual funds and eligible institutional investors. Series I shares are not sold to the general public. Each Series I investor negotiates its own management and advisory fee that is paid directly to the Manager. Series O shares are available to investors through the Private Client program and must be purchased through a Private Client account. Each Series O investor pays a management fee directly to the Manager and is eligible for management fee reductions, if any, based on the value of Series O shares held in the investor s Private Client account. Series O management fee is paid, after subtracting any management fee reductions, by a redemption of Series O shares in the investor s account. FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance from the date of inception to June 30, The Fund s Net Asset Value per Share ($) (1) Series A ($) ($) ($) ($) ($) Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.13) (0.23) (0.25) (0.25) (0.10) Realized gains (losses) for the period 0.01 (0.03) Unrealized gains (losses) for the period 0.20 (0.03) Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.07) (0.40) (0.11) (0.03) From capital gains (0.56) (0.20) (0.02) Return of capital Total annual distributions (3) (0.63) (0.60) (0.13) (0.03) Netassetvalue,endof period Semi-Annual MRFP Sun Life Global Investments p 3

6 Series AT5 ($) ($) ($) ($) ($) Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.17) (0.30) (0.35) (0.36) (0.14) Realized gains (losses) for the period 0.01 (0.03) Unrealized gains (losses) for the period 0.29 (0.17) (0.15) Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.08) (0.54) (0.17) (0.05) From capital gains (0.74) (0.28) (0.02) Return of capital (0.33) (0.74) (0.78) (0.78) (0.31) Total annual distributions (3) (0.33) (1.56) (1.60) (0.97) (0.36) Netassetvalue,endof period Series F ($) ($) ($) ($) ($) Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.07) (0.13) (0.13) (0.13) (0.05) Realized gains (losses) for the period 0.01 (0.03) Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.07) (0.41) (0.11) (0.03) From capital gains (0.57) (0.21) (0.02) Return of capital Total annual distributions (3) (0.64) (0.62) (0.13) (0.03) Netassetvalue,endof period Series I ($) ($) ($) Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses 0.01 (0.01) Realized gains (losses) for the period 0.01 (0.02) 0.68 Unrealized gains (losses) for the period (0.49) Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.06) (0.36) From capital gains (0.50) Return of capital Total annual distributions (3) (0.56) (0.36) Net asset value, end of period Series O ($) ($) ($) ($) Net asset value, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.03) (0.02) (0.01) Realized gains (losses) for the period 0.01 (0.02) Unrealized gains (losses) for the period 0.15 (0.06) (0.12) (0.43) Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.06) (0.38) (0.11) From capital gains (0.53) (0.19) Return of capital Total annual distributions (3) (0.59) (0.57) (0.11) Net asset value, end of period (1) (2) (3) This information is derived from the Fund s audited annual financial statements and from the semi-annual unaudited financial statements for the current period ended June 30, Net Assets and distributions are based on the actual number of shares outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of shares outstanding over the financial period. Distributions were paid in cash, reinvested in additional shares of the Fund, or both. p 4 Semi-Annual MRFP Sun Life Global Investments

7 Ratios and Supplemental Data Series A Total net asset value ($) (1) 7,350,500 7,288,188 5,285,640 6,810,539 2,300,060 Number of shares outstanding (1) 670, , , , ,977 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Netassetvalueper share ($) (1) Series AT5 Total net asset value ($) (1) 498, , , ,934 89,832 Number of shares outstanding (1) 37,048 28,603 22,559 16,475 5,714 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Netassetvaluepershare($) (1) Series F Total net asset value ($) (1) 380, , , , ,266 Number of shares outstanding (1) 33,284 35,668 14,090 47,749 26,173 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Netassetvaluepershare($) (1) Series I Total net asset value ($) (1) 5,808,766 4,879,421 1,279,306 Number of shares outstanding (1) 568, , ,669 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Netassetvaluepershare($) (1) (1) (2) (3) (4) (5) This information is provided as at December 31 of the period shown, except for the most recent semi-annual period, which is at June 30, Management expense ratio is based on total expenses (excluding broker commissions and other portfolio transaction costs) including the Fund s allocated percentage of Fund-on-Funds expenses for the stated period and is expressed as an annualized percentage of daily average Net Asset Value during the period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average Net Asset Value during the period. The Fund s portfolio turnover ratio indicates how actively the Fund s portfolio manager manages its portfolio investments. A portfolio turnover ratio of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a Fund s portfolio turnover ratio in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high portfolio turnover rate and the performance of the Fund. Percentages are annualized. Management Fees The annual maximum management fee paid by the Fund is a percentage of the average daily net asset value of each series exclusive of any applicable taxes and operating expenses, whichisaccrueddailyandispaidtothemanagermonthlyin arrears. Management fees pay for portfolio and investment advisory services, oversight of any service providers, marketing and promotional activities, arranging for the distribution and sale of securities of the Fund, general administration of fund operations and sales and trailing commissions paid to dealers. The percentages and major services paid for out of the management fees are set out below: As a Percentage of Management Fees Maximum Annual Management Fee Rate (%) Dealer Compensation (%) 1 General Administration, Investment Advice and Profit (%) Series A Shares Series AT5 Shares Series F Shares Series I Shares Series O Shares Includes sales and trailing commissions. Series O management fees are not paid by the Fund. Series O investors pay management fees directly to the manager. Series O Total net asset value ($) (1) 11,605,431 10,463,701 10,355,303 6,308,212 Number of shares outstanding (1) 1,088,143 1,022, , ,104 Management expense ratio (%) (2) Management expense ratio before waivers or absorption (%) (2) Trading expense ratio (%) (3) Portfolio turnover rate (%) (4)(5) Netassetvaluepershare($) (1) Semi-Annual MRFP Sun Life Global Investments p 5

8 PAST PERFORMANCE The indicated rates of return are the historical annualized and annual compounded total returns including changes in share value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any shareholder that would have reduced returns. Mutual funds are not guaranteed. How a fund performed in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns The following bar chart shows the Fund s annual performance for the period shown. The chart shows, in percentage terms, how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year. Series A Shares Annual return for the period ended December 31 and the six month period ended June 30, % Series F Shares Annual return for the period ended December 31 and the six month period ended June 30, % 5.0% 0.0% 7.8% 2013* 7.0% % 2.5% % 2017 Series I Shares Annual return for the period ended December 31 and the six month period ended June 30, % 4.3% 3.8% 3.7% 7.3% 5.0% 5.8% 4.7% 3.2% 0.0% 2015*** % 0.0% 2013* Series O Shares Annual return for the period ended December 31 and the six month period ended June 30, % Series AT5 Shares Annual return for the period ended December 31 and the six month period ended June 30, % 10.0% 7.3% 5.0% 4.5% 3.5% 4.3% 5.0% 5.8% 4.7% 3.2% 0.0% 2014** % * for the period of August 1, 2013 to December 31, % 2013* ** for the period of April 1, 2014 to December 31, 2014 *** for the period of May 1, 2015 to December 31, 2015 p 6 Semi-Annual MRFP Sun Life Global Investments

9 SUMMARY OF INVESTMENT PORTFOLIO (1) as at June 30, 2017 (unaudited) Top 25 Investments (3) Percentage of NetAssetValue Holdings of the Fund (%) 1 Cash Dynamic Aurion Total Return Bond Fund, Series O (2) Dynamic High Yield Bond Fund, Series O (2) Dynamic Credit Spectrum Fund, Series O (2) The Bank of Nova Scotia TransCanada Corp JPMorgan Chase & Co BCE Inc Microsoft Corp Canadian Imperial Bank of Commerce Royal Bank of Canada The Toronto-Dominion Bank Brookfield Asset Management Inc Fortis Inc Honeywell International Inc Canadian Pacific Railway Ltd Allergan plc Verizon Communications Inc Rogers Communications Inc Prudential PLC Comcast Corp Pembina Pipeline Corp Innergex Renewable Energy Inc Medtronic PLC NextEra Energy Inc Total Net Asset Value (000 s) $ 25,644 Sector Allocation (3) Percentage of NetAssetValue of the Fund (%) Cash and Cash Equivalents (4) 16.4 Financials 12.7 Canadian Corporate Bond 12.2 Health Care 6.1 Industrials 5.8 U.S. Corporate Bond 5.8 Information Technology 5.2 Mutual Funds High Yield Fixed Income 5.1 Mutual Funds Canadian Fixed Income 5.0 Telecommunication Services 4.8 Utilities 4.5 Energy 4.1 Consumer Discretionary 4.0 Consumer Staples 3.5 Real Estate 2.4 Mutual Funds Income and Real Property 1.0 Materials 0.8 International Corporate Bond Asset Mix (3) Percentage of NetAssetValue of the Fund (%) U.S. Equities 25.4 Canadian Equities 21.7 Canadian Fixed Income 17.2 Cash and Cash Equivalents (4) 16.4 U.S. Fixed Income 10.9 International Equities 7.8 International Fixed Income (1) (2) (2) (4) All information is as at June 30, The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund. You may obtain quarterly updates to these holdings free of charge by calling us at , visiting our website at or by sending an to us at info@sunlifeglobalinvestments.com. The Fund invests in other investment funds. The prospectus of the underlying investment funds and other information can be found on SEDAR at The Fund invests substantially all of its assets directly in the underlying Trust Fund. The summary of investment portfolio for the Fund presents the investments as a percentage of the net asset value of the underlying Trust Fund. Cash and Cash Equivalents, for the purpose of this chart, includes other assets less liabilities. Semi-Annual MRFP Sun Life Global Investments p 7

10 Forward-Looking Statements This management report of fund performance may contain forward-looking statements about the Fund, including its strategy, results of operations, performance and condition. Forward-looking statements include statements that are predictive in nature, or that depend upon or refer to future events or conditions. They are based on current beliefs, expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and various economic factors. Many factors could cause the Fund s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors could include, among other things, general economic, political and market factors, including interest and foreign exchange rates, business competition, technological changes, changes in government regulations or in tax laws. Although the forward-looking statements contained in this report are based upon what management currently believes to be reasonable assumptions, the Manager cannot assure current or prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The words may, could, would, should, believe, plan, anticipate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. p 8 Semi-Annual MRFP Sun Life Global Investments

11 SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE You can find more information about each Fund in our Annual Information Form, and each Fund s management report of fund performance and financial statements, once available. These documents are incorporated by reference into this document, which means that they legally form part of this document just as if they were printed as part of it. For a free copy of these documents, call us toll-free at or ask your advisor. These documents and other information about the Funds, such as information circulars and material contracts, are also available at or Sun Life Global Investments (Canada) Inc. 1 York Street, Toronto, Ontario, M5J 0B6 Telephone: Facsimile: info@sunlifeglobalinvestments.com Sun Life Global Investments (Canada) Inc., Sun Life Global Investments (Canada) Inc. is a member of the Sun Life Financial group of companies.